Crop Trader ADM Sees Signs of Softness After Record Year of Profit

Tarso Veloso, Bloomberg News

(Bloomberg) -- Archer-Daniels-Midland Co. showed how lucrative crop trading can be by posting record annual profit in a challenging year, but the US agricultural giant is signaling some weakness ahead.

While ADM’s Chief Executive Officer Juan Luciano sees encouraging signs for the company’s biggest and most profitable division this year, he also warned of softer results ahead for areas such as its food and ingredients business and ethanol operations.

“We still see strong demand for grains globally, good crush margins in Europe and robust demand for meal and soy oil in the US, but ethanol will be more volatile, given inventory levels,” Luciano told analysts Thursday in a conference call after the company reported fourth-quarter profit that topped Wall Street estimates.

ADM’s quarterly earnings benefited heavily from a stronger-than-expected performance from grains trading and processing margins, helping the Chicago-based firm to post record annual profit of $4.34 billion — a 60% jump from the prior year. The results showed how one of the world’s top agricultural trading houses has been able to navigate through a web of agricultural issues including the War in Ukraine, supply bottlenecks and drought-driven shipment declines from the US and South America.

Executives flagged a “softening” in certain parts of its business such as dietary supplements, moderating growth in plant-based proteins, and an uncertain outlook for ethanol due to high stockpiles in the industry. ADM’s nutrition segment is already showing signs of weakness, after posting 6.5% annual earnings growth after three straight years above 20%. The CEO said profit growth in that business, the smallest of ADM’s three segments, will be “10% plus” this year.

ADM’s stock fell 0.3% to $85.31 at 1:23 a.m. in New York.

The guidance comes after ADM posted adjusted profit of $1.93 a share for the fourth quarter, topping the $1.66 average estimate of analysts surveyed by Bloomberg. The company’s Ag Services and Oilseeds business had a 46% profit jump from the year earlier due to higher margins and volumes, helping offset lower earnings in its divisions that specialize in making ingredients for the food and beverage industry and ethanol production.

ADM’s results and guidance may signal what’s to come for the world’s other large agricultural firms. ADM is among the grouping of the world’s biggest agricultural trading houses known in the industry as the “ABCDs”, which also include Bunge Ltd., Cargill Inc. and Louis Dreyfus Co. The industry giants have been dealing with volatile markets, weather woes and disruptions from Russia’s war in Ukraine, the European bread basket.